These Return Metrics Don't Make Singapore Telecommunications (SGX:Z74) Look Too Strong

What underlying fundamental trends can indicate that a company might be in decline? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. So after glancing at the trends within Singapore Telecommunications (SGX:Z74), we weren't too hopeful.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Singapore Telecommunications:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.027 = S$1.1b ÷ (S$49b - S$9.1b) (Based on the trailing twelve months to June 2022).

So, Singapore Telecommunications has an ROCE of 2.7%. In absolute terms, that's a low return and it also under-performs the Telecom industry average of 11%.

See our latest analysis for Singapore Telecommunications

Above you can see how the current ROCE for Singapore Telecommunications compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Singapore Telecommunications here for free.

What Does the ROCE Trend For Singapore Telecommunications Tell Us?

In terms of Singapore Telecommunications' historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 7.1%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Singapore Telecommunications becoming one if things continue as they have.

The Bottom Line On Singapore Telecommunications' ROCE

In summary, it's unfortunate that Singapore Telecommunications is generating lower returns from the same amount of capital. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Singapore Telecommunications does have some risks though, and we've spotted 1 warning sign for Singapore Telecommunications that you might be interested in.

While Singapore Telecommunications isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.